New EU Action Plan on company law and corporate governance: towards a more modern set of rules for more engaged shareholders and sustainable companies? Or are we seeing the death of European IPO markets, being overtaken by the emerging economies?

Europe 7 Feb 2013

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Corporate governance should really be about creating value. There are many definitions of governance, but in many the importance of company growth and competitiveness is missing. This is unfortunate, in that it has allowed corporate governance to become too often a rather pointless tick-box exercise

—Paul Moxey, head of corporate governance and risk management,ACCA

Corporate governance needs to be seen as a means to an end, and not as an end in itself. As such, the proposed measures of the Action Plan need to deliver real benefits to companies and investors, such as improved company performance and sustainable long term value creation, and not merely burden businesses - were the main conclusions of this week’s conference jointly organised by ecoDa and EuropeanIssuers, in collaboration with ACCA

Lutgart Van den Berghe, chair of ecoDa’s policy committee, said: 'People should not forget that governance is not an end in itself but a means to an end. Companies should develop a governance model that helps them to reach the corporate goal and allows them to make effective decisions in the long term interest of the company, shareholders and stakeholders. The board is a crucial factor to this end. But also shareholders have to play their role to foster growth, strategy, entrepreneurship and sustainability.'

Paul Moxey, head of corporate governance and risk management at ACCA stressed that 'Corporate governance should really be about creating value. There are many definitions of governance, but in many the importance of company growth and competitiveness is missing. This is unfortunate, in that it has allowed corporate governance to become too often a rather pointless tick-box exercise.'

Speakers stressed the overall quality of corporate reporting has gone up, and the focus now should be on yet more improvement in the general quality of disclosure around corporate governance and a clear articulation by each company of how its governance arrangements support its business model. The assumption that shareholders are the monitors of companies’ governance presupposes their engagement. This is certainly one of the most important challenges of the Action Plan.

The political agenda in the field of corporate governance is becoming higher and higher, while financial regulation is becoming ever more detailed, without taking account of the underlying changes to financial markets. Speakers questioned whether the EU’s current focus is the right one to provide dynamic stock markets for companies. One speaker from the OECD presented statistics showing the decline in European IPOs over the past 10 years, while another speaker stated 'The IPO market in Finland is dead.'

Susannah Haan, secretary general of EuropeanIssuers, concluded that: 'Securities' law and financial market regulation are being developed separately from company law and corporate governance, leaving companies struggling to make a coherent whole of the regulatory picture. We hope that the publication of the forthcoming Green Paper on long-term investment may open a wider debate on these issues.'

The European Commission published its Action Plan on company law and corporate governance on 12 December 2012, with three main sets of measures:

The first one aims at increasing transparency, and includes proposals on strengthening disclosure on board policies on diversity and non-financial risk management, on the quality of explanations for non-compliance in corporate governance reports, on shareholders’ identification, and relating to the transparency of voting policies.

The second set relates to shareholders’ engagement and covers better oversight of remuneration policy, better oversight of related party transactions, regulating proxy advisors, the clarification of the concept of 'acting in concert', and employee share ownership.

The third pillar entails the company law components of the Action Plan. These are mainly linked to, on the one hand, improving the framework for cross border operations of companies - including the commitment to further explore the feasibility of the cross-border transfer of seat, improving the mechanism for cross-border mergers, enabling cross-border divisions, smart legal forms for European SMEs, ensuring a proper follow-up of the European Private Company, and the concept of ‘group interest’ - and, on the other, merging and codifying the provisions of various company law directives to make a more coherent and consistent set of rules.

For further details, please see the 'Related Links' section, left of this article.

Following publication of the Action Plan, ecoDa (The European Confederation of Directors' Associations) and EuropeanIssuers, in collaboration with ACCA (the Association of Chartered Certified Accountants), organised a conference in Brussels called 'The Action Plan on Corporate Governance and Company Law: What's in it and Why?', during which distinguished experts presented the new Action Plan, and discussed the potential impact of its various proposals and its expected effectiveness in contributing to better governance, more successful enterprise and to a healthier economic recovery in Europe.